Holton v. Blue Cross and Blue Shield of South Car., CIV.A. 98-A-889-S.

Citation56 F.Supp.2d 1347
Decision Date27 July 1999
Docket NumberNo. CIV.A. 98-A-889-S.,CIV.A. 98-A-889-S.
PartiesMichael Guy HOLTON, Plaintiff, v. BLUE CROSS and BLUE SHIELD OF SOUTH CAROLINA, et al., Defendants.
CourtUnited States District Courts. 11th Circuit. Middle District of Alabama

Anne Laura R. Parker, Ozark, AL, Rhon E. Jones, Thomas J. Methvin, Beasley, Allen, Crow, Methvin, Portis & Miles, PC, Montgomery, AL, for Michael Guy Holton, plaintiff.

David R. Boyd, Sterling G. Culpepper, Jr., Donald R. Jones, Jr., Balch & Bingham, Montgomery, AL, Robert P. MacKenzie, III, Reed R. Bates, Geoffrey S. Bald, Starnes & Atchison, Birmingham, AL, for defendants.


ALBRITTON, Chief Judge.


This cause is before the court on a Motion to Dismiss, filed August 19, 1998, by Blue Cross and Blue Shield of South Carolina d/b/a Palmetto Government Benefits Administrators ("Blue Cross and Blue Shield").1

Michael Guy Holton ("Holton") originally filed his Complaint in the Circuit Court of Coffee County, Alabama on June 26, 1998, alleging five state law claims. Count I alleges a claim for fraudulent misrepresentation. Count II alleges a claim for fraudulent suppression. Count III alleges a claim for innocent, reckless, and negligent misrepresentation and concealment. Count IV alleges breach of contract and failure to meet the duty of good faith and fair dealing. Count V alleges that the Defendants conspired to defraud Holton.

Blue Cross and Blue Shield removed the case to this court on August 12, 1998, pursuant to 28 U.S.C. §§ 1442(a)(1) and 1446, and the other Defendants consented to and joined in the Notice of Removal. Holton filed a Motion to Remand on September 10, 1998. Because Holton did not file a brief in support of his Motion to Remand, despite an order from the court requiring him to do so, his Motion to Remand was denied.


Federal courts are courts of limited jurisdiction, and if a case does not come within the limited grant of power to the federal courts derived from Article III of the United States Constitution and from the legislative acts of Congress, a federal court does not have the power to hear or determine that case. See Insurance Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 701, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982). Thus, absent jurisdiction over the subject matter of the plaintiff's claims against a defendant, the court must dismiss the plaintiff's claims. See Fed. R. Civ. P 12(h)(3) ("Whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action.").


Holton's Complaint avers the following facts:

Holton is a licensed professional counselor and a listed provider of mental health services under the CHAMPUS program. Compl. at ¶ 12. In April 1996, Defendant Palmetto ("Palmetto") was awarded a bid to underwrite mental health coverage for CHAMPUS beneficiaries and contracted with the United States Secretary of Defense to provide mental health services under CHAMPUS. Compl. at ¶ 7. Blue Cross and Blue Shield is the fiscal intermediary for Defendant Palmetto. Compl. at ¶ 8. Defendant Choice Behavioral Health Partnership ("Choice") reviews and approves all Alabama claims for Palmetto. Compl. at ¶ 9. Defendant Pam Moore ("Moore") is an area manager for Choice.2 Compl. at ¶ 10.

In the course of his business, when Holton provided counseling services to Blue Cross and Blue Shield's CHAMPUS beneficiaries, Holton would submit claims to Defendants for payment. Compl. at ¶ 13. On or about August 8, 1997, Holton resubmitted claims that had been outstanding since April 11, 1996. Compl. at ¶ 15. Blue Cross and Blue Shield paid some, but not all, of these claims. Compl. at ¶ 16. Holton and his lawyer met with Defendants on or about October 27, 1997, and November 5, 1997. Compl. at ¶¶ 17-18. After the November meeting, Holton resubmitted the unpaid claims to Blue Cross and Blue Shield. Compl. at ¶ 19. Defendants have not paid the claims. Compl. at ¶ 20.

A. Basis for Subject Matter Jurisdiction at the Time of Removal

Before addressing the immunity defenses and other grounds for dismissal asserted by Blue Cross and Blue Shield, there are some points of clarification that should be made. In an earlier Memorandum Opinion and Order, the court made reference to there being subject matter jurisdiction in this case under 42 U.S.C. § 1346. The grounds upon which jurisdiction was asserted in the Notice of Removal, however, were 42 U.S.C. § 1442(a)(1) and § 1446. The court clarifies that 42 U.S.C. § 1346 is not the basis for jurisdiction in this case and the United States is not a defendant in this case.

Because the Motion to Remand was summarily denied, due to Holton's failure to file a brief, the parties have never fully addressed the propriety of subject matter jurisdiction at the time of removal. The court finds that a limited discussion of the propriety of jurisdiction at the time of removal is helpful to understanding the application of the sovereign immunity defenses which have subsequently been raised in this case.

The United States Code provides in 28 U.S.C. § 1442(a)(1) that a civil action commenced in a state court against an agency of person acting under that agency, for any act under color of such office, may be removed by that person to the district court of the United States for the district and division embracing the place where it is pending. The Eleventh Circuit has stated that the Federal Officer Removal Statute creates a right of removal which is absolute whenever a suit in a state court is for any act under color of federal office, regardless of whether the suit could originally have been brought in federal court. Magnin v. Teledyne Continental Motors, 91 F.3d 1424 (11th Cir.1996). "If the statutory prerequisites are satisfied, section 1442(a)(1) provides an independent federal jurisdictional basis." Id. at 1427.

Proper removal under § 1442(a)(1) has two requirements: one, that the defendant advances a colorable defense arising out of his duty to enforce federal law, and two, that there is a causal connection between what the officer has done and the action against him. Id. The defense advanced need only be plausible; "its ultimate validity is not to be determined at the time of removal." Id. Any determination as to the merits is "collateral to the jurisdictional question." Akin v. Big Three Industries, Inc., 851 F.Supp. 819 (E.D.Tex.1994). As one district court has explained it, if the connection to the United States is sufficient for purposes of removal and the plaintiff then alleges that the defendants were engaged in a "frolic of their own" as part of the claim, the defendants "should have the opportunity to present their version of the facts to a federal, not a state, court." Group Health Inc. v. Blue Cross Assoc., 587 F.Supp. 887, 890-91 (S.D.N.Y.1984).

In this case, Blue Cross and Blue Shield has stated that "BCBS, in carrying out its duty to administer CHAMPUS3 contract, which actions are the subject of this litigation, acted under the direction of the officers of the United States and agencies thereof, and acted under the color and authority of those officers." Notice of Removal at ¶ 5.

One federal court has explained that a sufficient showing of acting "under the color" of the United States has been made where the party puts in issue the questions of official justification and immunity. Group Health Inc., 587 F.Supp. at 890. Another federal circuit has determined that a statement in the removal petition that the plaintiff's allegations were based on acts done by the defendant under color of his office as an employee of the United States while he was acting in the scope of his employment was sufficient to give rise to a colorable defense. See Jamison v. Wiley, 14 F.3d 222 (4th Cir.1994). This court finds that Blue Cross and Blue Shield has adequately put in issue the question of whether it was acting as an agent of the United States so as to provide a colorable federal defense of sovereign immunity. Accordingly, this court has jurisdiction in this case pursuant to § 1442(a)(1).

B. Asserted Grounds for Dismissal

Holton has brought a claim for breach a contract and has brought fraud claims against Blue Cross and Blue Shield. Blue Cross and Blue Shield in turn has moved for dismissal on several grounds including that (1) it is entitled to sovereign immunity as a CHAMPUS fiscal intermediary administering a government benefit plan (2) Holton has failed to exhaust administrative remedies under the CHAMPUS regulatory scheme; (3) Holton failed to state his fraud claims with the particularity required under Fed.R.Civ.P. 9(b); and (5) Holton failed to state a claim upon which relief can be granted under Fed.R.Civ.P. 12(b)(6).

1. Contract Claim

Holton has brought a breach of contract claim against Blue Cross and Blue Shield. Blue Cross and Blue Shield argues that it, like the United States, has sovereign immunity as to this claim and also argues that Holton has failed to exhaust his administrative remedies. The court will first address Blue Cross and Blue Shield's argument that it is entitled to sovereign immunity as a CHAMPUS fiscal intermediary.

a. Sovereign Immunity

Blue Cross and Blue Shield argues that as an agent of the government it, like the United States, is entitled to sovereign immunity as to the Plaintiff's claims because it acts under the control of Director of OCHAMPUS, and ultimately the Secretary of the Department of Defense. Holton responds that Blue Cross and Blue Shield is not entitled to sovereign immunity because the United States is not the real party in interest in this case. Even though there is precedent outside of the Eleventh Circuit to the contrary, Holton states that he concedes that if there were an indemnity agreement by which a judgment would subject the government to liability, sovereign...

To continue reading

Request your trial
10 cases
  • Little v. Purdue Pharma, L.P.
    • United States
    • U.S. District Court — Southern District of Ohio
    • September 20, 2002
    ...allegedly tortious acts concerned its manufacture of Navy submarines pursuant to a federal contract. Holton v. Blue Cross and Blue Shield of South Carolina, 56 F.Supp.2d 1347 (M.D.Ala.1999), also concerned a federal contract. Therein, the defendant seeking removal was acting pursuant to its......
  • Guckin v. Nagle
    • United States
    • U.S. District Court — Eastern District of Pennsylvania
    • April 28, 2003
    ...Curon cites to Fung v. Abex Corp., 816 F.Supp. 569 (N.D.Cal. 1992) (government contractor defense); Holton v. Blue Cross & Blue Shield of South Carolina, 56 F.Supp.2d 1347 (M.D.Ala.1999) (managed-care companies); Texas v. Nat'l Bank of Commerce of San Antonio, 290 F.2d 229 (5th Cir. 1961) (......
  • Mentis El Paso, LLP v. Health Care Serv. Corp.
    • United States
    • U.S. District Court — Western District of Texas
    • September 12, 2014
    ...and Welfare to provide for the administration of the Act through contract ‘carriers.’ ”).64 See Holton v. Blue Cross & Blue Shield of S.C., 56 F.Supp.2d 1347, 1352–53 (M.D.Ala.1999) (citing Vanderberg v. Carter, 523 F.Supp. 279, 285 (N.D.Ga.1981), aff'd without op., 691 F.2d 510 (11th Cir.1......
  • Van Horn v. Arkansas Blue Cross and Blue Shield
    • United States
    • U.S. District Court — Eastern District of Arkansas
    • October 31, 2007
    ...1999 U.S. Dist. LEXIS 21725, at *6-28 (S.D.Ohio Mar.3, 1999) (HMO administering Medicare HMO plan); Holton v. Blue Cross and Blue Shield of South Carolina, 56 F.Supp.2d 1347 (M.D.Ala.1999) (carrier administering mental health services under the Civilian Health and Medical Program); Group He......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT